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Wednesday, September 11, 2013

Oil pulls back as Syria risk premium evaporates

President Obama is looking for a way out as are oil bulls that were betting on a Middle East disaster. Risk premium came out of the market and for at least in the near term the market may start to focus of more traditional fundamentals. The President said that he is going to give diplomacy a chance and that is why oil (NYMEX:CLV13) got hammered along with products. Yet behind the drama and behind the hyperbole, what we saw on the oil front really was historic. We are seeing a change in the way we assess risk in the global oil market and how we make up for threats to supply.

While many people might have been shocked by a report by the Energy Information Administration historic report on U.S. oil production and exports, readers of the Energy Report were not. We already told you that the United States was acting as a global swing producer in the latest crisis. The U.S. Energy Information Administration confirmed what we have been telling you by pointing out that the amount of unplanned lost oil production came to about 2.7 million barrels per day in August, which was the biggest global shortfall in almost two years. Libya and their ongoing labor dispute caused half of that loss and the last time this happened the International Energy Agency was forced to release light sweet crude from its reserves to feed the European refiners and quell a spike in crude that caused WTI to spike to $114.83 and Brent to more than $126 dollars a barrel. The reason why this spike in price didn’t happen this time with the threat of World War III and the drop in production was the surge in U.S. oil production. U.S. crude-oil output will spike to a whopping 15.1% to 7.47 million barrels a day an all-time record. This spike has allowed the U.S., with the help of near record Saudi Oil production, to temper what would have been a disastrous spike in global oil prices. Even OPEC had to admit that the market at present remains well supplied despite production drops by Libya and Iraq, but instead of thinking about cutting production they instead are worrying about declining market share.

This also means that we will have to view our weekly petroleum supply reports with a different perspective than we have in the past. The focus on inventories will change because with booming production, refiners will be less reliant on inventory instead of building a cushion of supply to protect them from a drop in imports. In other words, we will go from pipeline to refiner and then to the export market or for domestic use. We should be less stressed that for example diesel inventories supplies are near low levels. It does not make as much sense to store oil and product and incur that cost when there is ample production. We can flourish with much smaller inventories than we have had to in the past. You are reading this here today — in the next days and weeks you will be reading this everywhere else!

Of course who needs oil when you can get Panda poop? The National Geographic reported that panda poop can help power the greener vehicles of tomorrow. Scientists say that Pandas eat plants yielding microbes that efficiently turn plant waste into biofuel—and the research just might help protect pandas at the same time. "We have discovered microbes in panda feces might actually be a solution to the search for sustainable new sources of energy," Mississippi State University biochemist Ashli Brown, who led the study, told attendees at a meeting of the American Chemical Society (ACS) Tuesday. "It's amazing that here we have an endangered species that's almost gone from the planet, yet there's still so much we have yet to learn from it. That underscores the importance of saving endangered and threatened animals." Biofuels made from corn, soybeans, and other edible crops cause concerns over their potential impact on food supply and prices. Some even argue that such biofuels ultimately may produce even more carbon emissions than petroleum.

Today on September 11th we stop to remember a day when not only was a building attacked but an attack on human decency! We continue to pray for all of those that have been impacted by that heinous act. The attack on freedom will never succeed because it is an attack on the human spirit itself.